Banking deductions and regulatory accounting: HTM premium and statutory fund contribution treated as allowable, with one issue remanded.

Banking expenditure governed by regulatory norms was treated on the basis of substantive character rather than book entry alone. Amortisation of premium on Held To Maturity securities was accepted as a deductible business claim where supported by RBI guidelines and linked to acquisition cost. A statutory contribution to the Co-operative State Cadre Employment Fund was treated as an ascertained liability, not a contingent or profit appropriation, because it arose under the Maharashtra cooperative framework at a fixed notified rate. The issue on reversal of interest on performing agricultural assets required factual verification against the Agricultural Debt Waiver Scheme and RBI directions, so it was sent back for fresh examination.

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Issues: (i) Whether amortization of premium paid on Held To Maturity securities was allowable as a business deduction; (ii) whether the provision/contribution made towards the Co-operative State Cadre Employment Fund was a deductible liability; (iii) whether the issue relating to reversal of interest on performing agricultural assets required fresh adjudication.

Issue (i): Whether amortization of premium paid on Held To Maturity securities was allowable as a business deduction.

Analysis: The premium was paid on government securities held in the HTM category, and the claim was supported by RBI guidelines. The reasoning accepted that in the case of banks, investment accounting and treatment of such premium cannot be divorced from the regulatory framework, and relied on the principle that amortization of premium on HTM securities is allowable where the expenditure is incurred as part of the cost of acquiring the securities and is recognised under the banking regulatory regime.

Conclusion: The disallowance was deleted and the claim was allowed in favour of the assessee.

Issue (ii): Whether the provision/contribution made towards the Co-operative State Cadre Employment Fund was a deductible liability.

Analysis: The contribution was made under the Maharashtra Cooperative Societies Act, 1961 and the Maharashtra Cooperative Societies Rules, 1961 pursuant to a statutory obligation and at a fixed rate notified by the State Government. The liability was not treated as contingent because the amount was statutorily ascertained and was in fact paid in the succeeding period. The contribution was therefore held to be an allowable business expenditure and not a mere appropriation of profits.

Conclusion: The deletion of the addition was upheld and the issue was decided in favour of the assessee.

Issue (iii): Whether the issue relating to reversal of interest on performing agricultural assets required fresh adjudication.

Analysis: The claim arose from a change in accounting treatment in the backdrop of the Agricultural Debt Waiver Scheme and the RBI directions. Since the record did not clearly establish the eligible amount covered by the scheme or whether the related interest had in fact been written off in the books, the matter required verification of facts and reconciliation with the scheme and supporting documents. In the interest of natural justice, the matter was restored for de novo examination.

Conclusion: The issue was remanded to the Assessing Officer for fresh decision and was allowed for statistical purposes.

Final Conclusion: The assessee succeeded on the core deduction issues, while one issue was restored for fresh consideration; the Revenue's appeal failed.

Ratio Decidendi: Where bank-related expenditure or income recognition is governed by statutory or regulatory banking norms, and the liability is ascertained rather than contingent, the deduction or tax treatment must be determined on the basis of the substantive nature of the entry and supporting facts, not merely its book presentation.

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